Like many manufacturers, Lebanon, Ohio-based Fecon Inc. - a vegetation management equipment maker with about 100 workers - has seen a downturn in orders. But continually looking to diversify applications for its products has paid off with incremental sales that would have otherwise been lost, according to Dennis Goldbach, vice president of operations.
Fecon, for example, is now developing machines that do sub-soil work used in land reclamation. By taking down what's standing as well as the roots, customers would have an easier time bringing back farmland and that's something that might sell well in the southeast where the blueberry business has exploded.
The company also is developing machines that work lime down into the soil – stabilizing it for construction – and other machines that would mill asphalt.
“It certainly does help instead of just keeping our head in the ground,” Goldbach said. “It helps not only from a sales standpoint, but from a customer perception standpoint that we are moving forward with new products and that we have a greater breadth of products that we can provide to the market.”
Goldbach said a key factor in common sense diversification strategies is opening products up to new markets without overreaching. Although the asphalt mill equipment being developed would use different grinding tools than what Fecon typically uses, for example, it's based on the same technology the company uses to grind trees.
“We don't want to be radically different than what we do and what our core business is,” he said. “This stuff (we are working on) is all very complimentary, it's a lot of the same technology, it's a lot of the same parts.”
Diversification – whether it's in the products offered or the type of clients served – seems to be helping manufacturers such as Fecon cushion the blow of these tough economic times. While branching out takes a lot of work, and a lot of time, the companies we talked to say it's a solid long-term strategy.
Seeing the problems at Delphi was a catalyst for a Michigan company to diversify
At one time, Trutron Corporation in Troy, Michigan did about half of its work for the auto industry.
Then about three years ago, the company looked at the problems Delphi was having and started to move away from auto jobs, according to Tim Griswold, vice president of manufacturing. Trutron, which does things like close tolerance CNC machining and grinding, now brings in work from a variety of sectors including aerospace, marine, defense, energy and medical. Auto work these days is only a small percentage of the volume.
“It was a scary decision when you think about it,” Griswold said. “We walked away from a considerable amount of business. But we'd be in a world of hurt right now if we hadn't done that.”
To start the process of diversifying, Trutron looked over its current customer base to see what additional services they could provide. Then they started courting other potential clients and broke into sectors such as energy by landing jobs to make tooling for oil rigs.
Griswold said it took about 18 months to start getting a good mix of clients and it's something that the company is still working on. His advice for companies too heavy in one segment; have faith in the decision to diversify and be willing to work to making it happen.
“It may take a number of months but you need to continually work with (potential clients) and stay the course,” Griswold said.
Some companies limit the amount of work they will do for any one industry
Steve Staub's diversification strategy is simple.
The president of Staub Laser Cutting in Dayton caps the work he's doing for any industry at 25 percent of the company's total volume, so he's turned away work that would have put them over the self-imposed limit.
“It has hurt because we've had projects we've turned down that went to competitors,” Staub said. “But it's a long-term strategy. I've seen so many companies over the years that are just in one segment, no matter what it is, and then if that market segment is way down their business is way down. Being diversified increases your odds of weathering storms.”
Staub Laser Cutting serves about 16 different market segments - from automotive and aerospace to military, locomotive and medical equipment – and does everything from prototypes to large volume production runs.
Although he's turned away jobs, Staub has seen a lot of positives from not having all his eggs in one basket. For starters, he's able to complete work for regular customers when they need it done. And the company has picked up jobs from competitors who don't impose the same limits and end up turning down work from customers because they were too busy with other projects.
“I think every industry is down at least a little bit right now, but (our strategy) seems to be working,” Staub said.
Diversifying you client base can take years, so be prepared to be patient
Injection molding company Hartlage Manufacturing in Buckner, Kentucky is holding its own through these tough times, something Tony Hartlage says is tied a move toward diversifying its client base about four years ago.
“We're like everybody else right now, we still need more work but widening our net has definitely cushioned the blow.”
Tony and his brother Brian co-own the company, which was started by their parents in the late 1970s. The business, which for many years served mainly the printer industry, was doing well. But when the brothers took over they thought it would be a good idea to start branching out.
Over the next several years they went after work from manufacturers in other industries such as office products, communications, temperature and humidity controls and people counters.
It wasn't an easy task. Tony says Hartlage's pricing is on par with other companies across the industry, so it took a lot of work to make inroads in different sectors. In some cases that translated into years of calling on a company, waiting for one of their vendors to drop the ball or go out of business.
“We've picked up probably $200,000 in sales off of other companies going broke and then they had to move the molds to another facility, which they ended up getting moved here,” Tony says. “I hate to pick up work that way, but you have to stay in touch because that could happen anytime. If there's no opportunity there, you need to keep going to that customer for the next five or six years. Right now it's taking about two to two and a half years to land a new customer.”
David Velie, managing partner of Cincinnati, Ohio-based Amend Consulting/Techsolve, offers these tips for companies looking to diversify:
*Understand what your competitive factors are and look to apply these to your diversification process – such as quality, service, cycle time;
*Explore markets that are growing because of the economic downturn;
*Look to use existing equipment and capabilities that will enable you to quickly invade the market.
“Don't be halfway pregnant with diversification,” Velie said. “Organizationally make this a priority and allow your creative people to focus on this.”
In spite of the down economy, Fecon's Goldbach said his company hasn't cut the R&D budget. Much of where they venture with diversification is driven by customers demand.
“We are always looking for what we can do next that can help make our customers money,” Goldbach said. “If we can make them money, they will buy more stuff.”
Sources for this article include:
*Fecon Inc. http://www.fecon.com/start/default.asp
*Trutron Corp. http://www.trutron.com/
*Staub Laser Cutting http://www.staublaser.com/
*Hartlage Manufacturing http://hartlagemanufacturing.com/index.html
*Amend Consulting/Techsolve http://www.amendllc.com
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